AAR rules out tax credit for CCD on supplies to SEZs

CCD was seeking that all supplies to SEZs, without any distinction, by the company be treated as zero-rated supplies.

MUMBAI: The taxman wants to filter away some goods and services tax leeway that Café Coffee Day (CCD) sought to enjoy.

The quasi-judicial Authority of Advance Ruling (AAR) has told CCD that the coffee chain cannot claim input tax credit on supplies to special economic zones (SEZ). In a July ruling, it said CCD’s supply to SEZ units (companies inside SEZ) does not qualify as “zero-rated supply” as it is not classified as an authorised SEZ transaction.

Zero-rated supply is a concept in the GST framework wherein the tax rate on the inputs or raw materials is zero. Allowing CCD to claim this would mean the company would be left with more input credit as it is paying GST when it is selling the goods. Input tax credit is a mechanism where cost incurred by a company can be adjusted against future tax liabilities.

CCD was seeking that all supplies to SEZs, without any distinction, by the company be treated as zero-rated supplies. It had approached the AAR with the question, “Whether supply of non-alcoholic beverages to SEZ units using coffee vending machines is in the nature of zero-rated supply as defined under Section 16 of the IGST Act 2017.”

Tax experts said there could be some ambiguity around the GST framework vis a vis SEZ rules.“By pointing out ambiguity along with absence of any clarification in GST law, CCD contended that all supplies to SEZ should be treated as zero-rated supplies. The GST framework dealing with refund of input tax credits relating to SEZ supplies also speaks of inputs being used for authorised operations,” said Rakesh Bhargava, director of tax advisory firm Taxmann. CCD carries out two types of transactions in SEZs. In the first, the company installs vending machines in SEZs and charges the units based on coffee consumed by staff. In the other, it charges the quantity of ingredients supplied as the units in the SEZs are serving beverages themselves to staff. In both cases, the supply should not be considered zero-rated, the AAR ruled.